By K. B. Bhujle, Advocate
CIT vs. Creative Infocity Ltd.; 397 ITR
165(Guj):
The assessee company, a subsidiary company
of C of the USA entered into joint venture undertaking with the Government of
Gujarat for developing and construction of an information technology park at
Gandhinagar, a project awarded to it by the Government of Gujarat. While
carrying out the construction of the project, the assessee entered into a
contract agreement with two non-resident companies, viz., N, and C, for
providing designs and drawings and for marketing and selling services
respectively. During the course of verification of the foreign remittances to
these entities, the Assessing Officer observed from the agreement entered into
between the assessee and N that the services provided by the non-resident
company were rendered towards providing of architectural, structural
engineering designs and drawings services, as mentioned in clause 9 of the
contract. As regards the payments made to C, the Assessing Officer observed
that the payments were made for providing services related to marketing and
selling, projects office administration expenses and promotional expenses and
to design charges which were paid to the employees of C, towards their salary,
travel expenses, etc. Therefore, the Assessing Officer was of the
opinion that since the payments made towards the services rendered by the
foreign companies were taxable as defined in section 9(1)(vii) of the
Income-tax Act, 1961, as well as article 12 of the DTAA between India and US,
the assessee was required to deduct tax at source u/s. 195 of the Act.
Therefore, since the assessee made the payment to the foreign companies without
deducting tax at source, the Assessing Officer passed an order u/s. 201(1) and
(1A) read with section 195 of the Act raising demands. The Commissioner
(Appeals) and the Tribunal deleted the additions/demands.
The Gujarat High Court dismissed the appeal
filed by the Revenue and held as under:
“i) The
agreement with N was to procure the designs and drawings from architects. In
the agreement, only the assessee and N were the signatories and not the
architects. Thus, N first procured the plans and designs from the architects on
making payment of full consideration and thereafter supplied it to the assessee
as an outright sale. There were concurrent findings by both the Commissioner
(Appeals) as well as the Tribunal holding that (a) the assessee had purchased
drawings from N and not from the architects; (b) that the payment made by the
assessee towards supply of designs and drawings to N was for an outright
purchase and therefore, not taxable as royalty. The payment made towards supply
of designs and drawings to a non-resident was outright purchase and therefore,
not taxable as royalty u/s. 9(1) of the Act.
ii) The
agreement was for reimbursement of expenses incurred by C for marketing. The
expenses incurred by C were fully supported by the vouchers and certified by
the certified public accountant of the USA as well as the chartered accountant
of India certifying that the expenses were in fact reimbursement. There were
concurrent findings by the Commissioner (Appeals) as well as the Tribunal that
the amount was reimbursed and could not be said to be any amount paid to C for
rendering any service to the assessee. The findings of fact recorded by both
the lower appellate authorities were on appreciation of facts and considering
the material on record, more particularly the agreement entered into between
the assessee and C. It was not alleged that the findings of fact recorded by
lower authorities were perverse or contrary to the evidence on record. C had no
business activity or permanent establishment in India. It was neither working
through any agent nor had any branch in India. Therefore, the provisions of
section 9(1)(vi)(vii) would not have any application as the amount paid was
neither royalty nor fees for technical services.“
